On the Way to Value-less Money

No matter whether you are presented with a bill in Switzerland, in the USA or in China, the system is the same: coins and banknotes of no material value are accepted that are only worth anything in the respective country. This has led to a monetary system prevailing in which the state lays claim to a currency monopoly. And yet the way in this direction in West and East was a completely different one, as this journey through history shows.

The skyline of New York City, the Skyline of Shanghai – do you see the strong similarities? This is not surprising given how things are today. Western and Eastern (in our case, China’s) monetary traditions have in many ways become strikingly similar. However, only 200 years ago they were fundamentally different. That is what this exhibition is all about.

In the West, monetary symbols were always based on some equivalent value in gold, silver or copper. In the East, the system worked mainly without this safeguard. Money was literally valueless. And today, you can see which of these two mentalities has prevailed in the exhibition “On the Way to Valueless Money”.

I have produced various publications on this Western monetary tradition – a phase which is coming to an end just now - as well as a video presentation “The History of Money” and some entertaining audio dramas. These can be purchased or viewed in the Money Museum.

But first, let’s take a tour of the Money Museum. Here is something to keep in mind: our Western word cash comes from the Chinese word for a copper coin. It was called “cash”.

Can you imagine yourself saying: “My house cost 400 head of cattle?” Or: “I spent two cows on my wristwatch?” In the Persian Empire, two-and-a-half-thousand years ago, that’s how it was. One head of cattle was the standard for which to measure the wealth of a person or town.

When the Lydian king Croesus minted gold and silver coins with various weights, it was the first time that a community parted with the principle of “goods for goods” or “work for goods”.

You could carry the equivalent of one year’s mercenary work or a jug of wine in your pocket. Since Croesus, this invention has continued to develop right into the 20th century. Thanks to the monetary system, it was much easier for individuals, as well as communities, to amass wealth and thus gain power. People lent money and collected interest on the money. People held entire empires together by using a standardized currency, as the Romans did with their denarius. Charlemagne did this with the silver penny and the British did so with their pound sterling. Merchants in Florence or Marseille paid for whole shiploads of spices or cloth with a handful of gold coins. Additionally, the most distinguished artists competed for the privilege of creating magnificent motifs for their rulers: eagles, dolphins, or goddesses of freedom.

All this would have been unthinkable with a cow as the standard unit of currency…

But like the word “pecus” (cattle), which lives on in the word “pecuniary”, the Western monetary system stuck to the principle of “goods for goods”. The metal with which a coin was created, gold, silver and even copper, was a valuable material for jewelry and tools. Even after the introduction of paper money, the issuing state backed up the paper money with its gold equivalent.

Just a few decades ago, the West completely abandoned the gold standard. The Euro is the first currency which was created "valueless". Money has lost its material value and has become virtual. The coin has become a mere chip and its more than two-and-a-half-thousand year history seems to have come to an end… Perhaps the future will present us with a variety of currencies: global, national, or regional currencies and monetary systems. We can envision valuable currencies for international trade and investments and valueless currencies for daily use. First of all, however, the West needs to learn to live with valueless money. In order to do that, we need something that existed in China for thousands of years: mutual trust.

The world’s first currency system was developed in the Greek culture. Until approximately 550 BC, people worldwide exchanged goods for goods – a cow for a kettle, twenty cows for a wife…

Then the Lydian monarch Croesus invented a new exchange system: coins for goods. The stater (made of gold or silver) was the standard coin and, in addition, there were smaller units with varying degrees of value; all of them carrying the picture of a lion triumphing over a bull. This was a revolution!

A hundred years later, the people of Athens perfected this exchange system. Their coins carried the picture of the goddess Athena on the front and the famous Athenian owl on the back. All of their allies had to adopt this coin as their own – on pain of punishment. The tetradrachma became the first key currency in history.

Alexander the Great in turn significantly extended this basic concept. In 330 BC, throughout his entire empire, the gold stater and the silver tetradrachma were used. Weights, metals and imprints were the same everywhere, whether in Babylon or in Alexandria.

Alexander’s system prevailed for two centuries; the Roman system for five centuries. Here, too, the entire empire had a single currency: the silver denarius, which was worth ten bronze aces (hence the “X” on the front of the coin, which is Latin (“deni”) for “ten”).

The denarius was the inspiration for Charlemagne’s currency. The penny has been used since approximately 800 AD, the High Middle Ages. The definition of the empire’s new, standardized currency was originally 240 pennies to one pound of silver.

400 years later, it became increasingly clear that it was too awkward to pay for large trade items with silver currency. Hence, in 1252, the Florence town council introduced the floren – a pretty gold coin with the town’s heraldic flower on it, the lily. It was copied all over Europe, as was its counterpart the Venetian ducat.

Within the silver currency there was now more convenient money. At approximately the same time, the people in France began to use the “thick penny” or groschen – a silver coin worth twelve pennies. This idea pointed the way towards the future and was imitated all over Europe.

The taler, an impressive silver coin worth a gold gulden or ducat, was the most successful coin in modern times. It was issued around 1500 in the Habsburg territories and in Saxony, near productive silver mines. Later, the empress Maria Theresa’s taler and the Spanish peso became internationally accepted key currencies.

It was not until the 19th century that two new key currencies were created.

One was the pound sterling, the currency in the British Empire. Here is its showpiece, the gold sovereign, originally worth an entire pound of silver coins.

Its chief rival on the Continent was the French franc, a product of the French revolution. Napoleon’s military campaigns turned the franc into the reference currency on the European continent.

The 20th century’s key global currency was the US dollar. It existed in both gold and silver coins, like Croesus’ stater in olden times, although since 1900 paper bills have been used almost exclusively for payment.

And what about the 21st century? Will it be the age of the Euro, which has been the common currency for ever more European states since 1999?

At the time of Marco Polo, a European trader might have said of China: “Of what use are a few pounds of small perforated copper plates or some snail shells, which anyone can easily imitate or collect on the beach? A golden ducat or a silver taler in my hands has a secure value, no matter which prince or bishop had it minted.”

However, this way of thinking does not take into account the Chinese mentality, which has its roots in Confucianism and in the principle of mutuality. Market coins like the kauri or the cash were symbols for money. They were the promise of some future service. That is why they did not need to be backed by the imprint of the ruler’s profile or by materials like silver or even gold, which are valuable in and of themselves. The cash plates maintained the same look for centuries – no updates in date imprints and no relation to any particular dynasty of emperors or government. The promise of service had to be kept if the person who gave the promise did not want to lose face.

Our trader, Marco Polo’s contemporary, might have said as well: “But when it got down to business, they did demand and paid large sums of money in silver bars!” He had forgotten that this silver money was first used only in foreign trade, in exchanges with people like him who were used to concrete guarantees.

Let’s bear in mind that the principle of mutuality made China the world’s leading economic power. From 1200 to 1800, no Western empire could compete with China. The Great Wall of China, built around 1500, also bears witness to China’s power. With the export of tea and silk in the 19th century and the resulting influx of Western silver money, the Chinese monetary system was shoved out of balance. And, in 1889, the first dragon dollar announced China’s acculturation.

What we are currently experiencing is the revival of the Chinese monetary system, since there is no longer any gold backing the dollar or the Euro. Currencies based on the principle of mutuality are gaining influence. As mentioned before: it is not a coincidence that cash and cash sound alike.

One could ask: Why was the first means of payment a snail shell? Approximately 4,000 years ago, the first kauri snails left the Chinese coastal area and entered the Yellow River basin; the inhabitants were amazed at the shiny, rock-hard things. Whoever found a shell, wore it proudly.

As supplies got bigger and bigger, kauris lost their value as prestige objects. However, they were still exclusive enough to function as a means of exchange. Around 1500 BC, the kauri shell became an accepted means of payment – and remained so for 3,000 years. It became the leading currency all over Asia and Africa. Whenever people ran out of shells, they made them from clay, china or bones…

When the Chinese began to make bronze tools in approximately 1500 BC, a spade or a knife became the stable means of currency in exchange transactions. The first bronze coins were developed from these tools. Thereafter, objects of exchange became smaller and handier until they were a mere symbol for the tool.

Typically, “knife coins” were developed in coastal areas that were dominated by fishing and hunting, and “spade coins” were developed away from the coast where farming was predominant.

In China, “tool coins” gained acceptance at approximately the same time as Croesus minted the first gold and silver coins. The older the “tool coins”, the more easily you can recognize the model they were shaped after. The first “spade coins” even had a hollow stem representing a handle.

When you say: “I’ll pay cash”, you are using the designation for the most successful currency ever: the cash, a small Chinese copper coin with a handy square hole in the middle. They were handy because you could thread them on a string and carry them with you. They were successful because they continued to be used for 2,000 years after they were created as the empire’s currency around 200 BC.

The Ch’ien, which is the Chinese word for these coins, also had its predecessors. These were perforated, round discs of stone, jade, or bronze. Only after the unification of the Chinese principalities into the empire did unified cash prevail over common knife or spade money.

The Chinese not only invented paper; they also invented paper money. Since someone making a large purchase with cash coins might collapse under the weight of the copper, the coins proved to be rather inconvenient. As a result, the first paper currency was put on the market around 900 AD – with disastrous results. The authorities printed too many bills and the first inflation of paper currency took place.

In order to prevent such surprises, Chinese traders increasingly preferred the use of silver bars. The state had nothing to do with this parallel currency. This private means of payment – was circulated in the most fantastic shapes, such as silver shoes, kettledrums or tiger tongues, until the 1930’s.

Let us bear in mind that around 1800, China was still the largest economic power in the world with a monetary system of chip-like cash coins plus the parallel currency of silver bars.

During the 19th century, western silver money made its way to China. It was used mostly to pay for Chinese tea and silk, for which there was an ever-growing demand in England. Millions of English silver crowns were exported to China. At first, the Chinese treated the imported English crowns like their own silver bars. The coins were tested, stamped and traded among the population according to their weight.

In 1889, the Chinese government built its own mint and introduced the dragon dollar. This was called yuan and was worth 100 cents. One cent was the equivalent of 100 cash coins.

Now, which sort of money did prevail? The sort of money without any material value, like the Chinese cash coin, or, according to western tradition, money with value of its own, of precious metal?

At first sight, the western tradition prevailed: today, Shanghai looks like New York, and the yuan resembles the Euro and the dollar. But taking a closer look, things look different. For the time being, the western monetary tradition is coming to an end. Nowadays we use neither money (nor) of precious metal nor the cash coin. Instead, the monetary traditions of the West and East are increasingly merging.

Besides globalization with its concentration on only a few large currencies, we now have a tendency towards regionalization. Thousands of local currencies are emerging worldwide, some of them merging to regional currencies, in order to direct the flow of money into a specific area. Besides national currencies with their state monopoly, there is a large variety of means of payment today – we are already using frequent flier miles and vouchers of all sorts for paying. The internet makes trading between these forms of money possible.

But most important, for the first time in 2500 years even our western money has become a means of exchange without any material worth to it. In that sense it is valueless – and this phenomenon corresponds to a long eastern tradition. In the eastern world, the tradition of valueless money – as a means of exchange without any value of its own – is grounded on the basis of mutual trust. Money as a mutual promise with no backing by some actual material value – that is indeed a novelty to the western world. After all, for a very long time the value of the means of exchange had been the best argument against suspicion among trading partners.

So we can learn from the east how regional currencies work effectively, and how several forms of money can exist side by side.